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Sticky deposit rates

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Abstract

We examine the dynamics of eleven different deposit rates for a panel of over 2,500 branches of about 900 depository institutions observed weekly over ten years. We replicate previous work showing that rates are downwards-flexible and upwards-sticky, and show that a simple menu cost model can generate this behavior. The degree of asymmetric rigidity varies substantially by deposit type, bank size, and across branches of the same bank. In the absence of such stickiness, depositors would have received as much as $100 billion more in interest per year during periods when market rates were rising. These results also suggest that deposit rates are likely to lag increases in policy and market rates in future tightening cycles.

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  • John C. Driscoll & Ruth A. Judson, 2013. "Sticky deposit rates," Finance and Economics Discussion Series 2013-80, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2013-80
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    Cited by:

    1. Itamar Drechsler & Alexi Savov & Philipp Schnabl, 2017. "The Deposits Channel of Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 132(4), pages 1819-1876.
    2. Kurlat, Pablo, 2019. "Deposit spreads and the welfare cost of inflation," Journal of Monetary Economics, Elsevier, vol. 106(C), pages 78-93.
    3. Charles S. Morris & Kristen Regehr, 2014. "What explains low net interest income at community banks?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 59-87.
    4. Krishnamurthy, Arvind & Vissing-Jorgensen, Annette, 2015. "The impact of Treasury supply on financial sector lending and stability," Journal of Financial Economics, Elsevier, vol. 118(3), pages 571-600.
    5. Bassett, William F. & Chosak, Mary Beth & Driscoll, John C. & Zakrajšek, Egon, 2014. "Changes in bank lending standards and the macroeconomy," Journal of Monetary Economics, Elsevier, vol. 62(C), pages 23-40.
    6. Paul, Pascal, 2023. "Banks, maturity transformation, and monetary policy," Journal of Financial Intermediation, Elsevier, vol. 53(C).
    7. Acharya, Viral & Mora, Nada, 2011. "Are Banks Passive Liquidity Backstops? Deposit Rates and Flows during the 2007-2009 Crisis," CEPR Discussion Papers 8706, C.E.P.R. Discussion Papers.
    8. Sebastian Di Tella & Pablo Kurlat, 2021. "Why Are Banks Exposed to Monetary Policy?," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(4), pages 295-340, October.
    9. Popiel Michal Ksawery, 2017. "Interest rate pass-through: a nonlinear vector error-correction approach," Studies in Nonlinear Dynamics & Econometrics, De Gruyter, vol. 21(5), pages 1-20, December.
    10. Kirti, Divya, 2020. "Why do bank-dependent firms bear interest-rate risk?," Journal of Financial Intermediation, Elsevier, vol. 41(C).
    11. Glenn Boyle & Roger Stover & Amrit Tiwana & Oleksandr Zhylyevskyy, 2016. "“Honey, the Bank Might Go Bust”: The Response of Finance Professionals to a Banking System Shock," Working Papers in Economics 16/28, University of Canterbury, Department of Economics and Finance.
    12. Itamar Drechsler & Alexi Savov & Philipp Schnabl, 2018. "A Model of Monetary Policy and Risk Premia," Journal of Finance, American Finance Association, vol. 73(1), pages 317-373, February.
    13. Birchwood, Anthony & Brei, Michael & Noel, Dorian M., 2017. "Interest margins and bank regulation in Central America and the Caribbean," Journal of Banking & Finance, Elsevier, vol. 85(C), pages 56-68.
    14. Ruth A. Judson & Bernd Schlusche & Vivian Wong, 2014. "Demand for M2 at the Zero Lower Bound: The Recent U.S. Experience," Finance and Economics Discussion Series 2014-22, Board of Governors of the Federal Reserve System (U.S.).
    15. Gerlach, Jeffrey R. & Mora, Nada & Uysal, Pinar, 2018. "Bank funding costs in a rising interest rate environment," Journal of Banking & Finance, Elsevier, vol. 87(C), pages 164-186.
    16. Vladimir Yankov, 2014. "In Search of a Risk-free Asset," Finance and Economics Discussion Series 2014-108, Board of Governors of the Federal Reserve System (U.S.).
    17. Paul D. Adams & Stefan Hunt & Christopher Palmer & Redis Zaliauskas, 2019. "Testing the Effectiveness of Consumer Financial Disclosure: Experimental Evidence from Savings Accounts," NBER Working Papers 25718, National Bureau of Economic Research, Inc.
    18. Nada Mora, 2014. "The weakened transmission of monetary policy to consumer loan rates," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 1-26.
    19. Matthew Schaffer & Nimrod Segev, 2022. "The deposits channel revisited," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(2), pages 450-458, March.
    20. Stefan Nagel, 2016. "The Liquidity Premium of Near-Money Assets," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1927-1971.

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